Absa Bank Limited v Erasmus (9644/04 , 9644/2004) [2006] ZAWCHC 25; 2007 (2) SA 545 (C) (14 June 2006)

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[2006] ZAWCHC 25
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Absa Bank Limited v Erasmus (9644/04 , 9644/2004) [2006] ZAWCHC 25; 2007 (2) SA 545 (C) (14 June 2006)

Republic
of South Africa
REPORTABLE
IN THE HIGH COURT OF SOUTH AFRICA
(CAPE OF GOOD HOPE PROVINCIAL DIVISION)
CASE
No: 9644/2004
In the matter
between:
ABSA BANK
LIMITED Plaintiff
and
JACOBUS
LODEWICUS ERASMUS Defendant
_____________________________________________________________________
JUDGMENT
DELIVERED : 14 JUNE 2006
________________________________________________________________________
MOOSA,
J:
Introduction
The plaintiff instituted action against the defendant for: (a)
payment of the sum of R696 133,48; (b) interest at the rate of
15,5 per cent from date of service of summons to date of final
payment: (c) an order that the mortgaged property be declared

executable; and (d) costs of the action on an attorney and client
scale. The defendant opposed the action and counterclaimed the
sum
of R6 634 000 as damages. The defendant is not legally represented
and conducted his own defence.
Pleadings
The plaintiff’s case is based on money lent and advanced on an
overdraft facility that is secured by a covering bond over the
defendant’s farm. The defendant pleaded that plaintiff
fraudulently firstly, converted a loan on a first mortgage bond at
an
interest rate of not less than 17 per cent, to a loan on an
overdraft facility to enable it to impose a higher interest rate;

secondly, included a costs clause of R52 000 without his knowledge
and consent; and thirdly, effected withdrawals, payments and
unauthorized debits without his knowledge and consent. During the
course of the trial, defendant introduced a further defence
of
prescription. He alleged that plaintiff’s claim became prescribed
by efflux ion of time.
The defendant’s counterclaim is based on pain and suffering,
ill-health, emotional stress, financial ruin, domestic problems,
loss of his multi-million project and black-listing of his name,
which all resulted from the fraudulent conduct of plaintiff.
The
plaintiff denied these allegations and, more particularly, denied
that its conduct was directly or indirectly the cause of
defendant’s
problems. The plaintiff furthermore disputed that defendant
suffered any damages and pleaded that if defendant succeeds
in
establishing such damages, plaintiff denies that there is a causal
connection between the breach of contract alleged by him
and such
damages and/or that plaintiff is responsible or liable for the
payment thereof. The defendant’s counterclaim constitutes
both
the elements of a contractual liability and that of a delictual
liability.
The Onus
It is not disputed by the parties that the onus is on the plaintiff
to prove the nature and the terms of the contract and the amounts
claimed; while the onus is on the defendant to prove breach on the
grounds of fraud, the causal connection and damages. The onus
to
prove the special defence of prescription is also on the defendant.
At the Rule 37 Conference, the parties agreed that the
plaintiff
would start with the presentation of its case but it reserved the
right of rebuttal
1
.
Facts which are common cause
It is common cause that, early in December 1997, defendant applied
to plaintiff for a loan of R260 000 to purchase a farm. This
application was approved on 30 December 1997. The plaintiff
confirmed in writing that an amount of R260 000 was made available
to defendant to purchase the farm known as Weltevreden and situate
in the district of Laingsburg. The loan was subject to the
normal
conditions of the bank, amongst others, that a covering bond in an
amount of R260 000 shall be registered over the property
in favour
of plaintiff
2
.
It is common cause that on 12 January 1998 defendant applied for the
opening of a current cheque account and completed an application
form in respect thereof
3
.
It is also common cause that, on 30 January 1998, defendant
executed a power of attorney to register a covering bond and
simultaneously
initialled a draft covering bond which formed an
annexure thereto
4
.
These documents were executed and initialled at the offices of and
in the presence of the conveyancer, SJ Terblanche.
The objective evidence is that the covering bond was registered on
12 June 1998
5
.
The proceeds of the covering bond were made available to
the defendant on 15 and 17 June 1998 in the form of overdraft
facilities to pay the purchase price of the farm. It is not disputed
that the proceeds were in fact used to effect payment of such
purchase price. The evidence is not on all four squares with the
allegations in paragraphs 7 and 8 of plaintiff’s particulars
of
claim. However, not much turns on the difference as plaintiff has
accepted the objective evidence to which I have already alluded.
Allegations of fraud
Defendant in his plea and counterclaim makes serious allegations of
fraud against the plaintiff. Before dealing with the specific
grounds of fraud, I think that it is only prudent to make certain
general observations relating thereto. The allegations of fraud
are
regarded by our courts in a very serious light. They are not easily
made as they are difficult to prove
6
.
There is a duty on the person who makes such allegations to prove
them. In the present case, besides the
ipse dixit
of
defendant, there is no other evidence to substantiate the
allegations of fraud. Moreover, the objective evidence does not

support such allegations. The uncontroverted evidence is that
plaintiff confirmed the approval of the loan in writing, subject
to
the normal terms and conditions, amongst others, the registration of
a first covering bond. Defendant alleged that it was a
term of the
agreement that the interest would not exceed 17 per cent per annum.
It was also agreed that there would be a structured
monthly
repayment plan. These allegations are not supported by the terms of
the bond.
Pursuant to the approval of the loan, defendant executed a power of
attorney to register a bond and initialled a draft bond document.

The bond was registered in the deeds office. The proceeds thereof,
in the form of overdraft facilities on the cheque account
of
defendant, were paid to cover the purchase price of the property
over which the bond was registered. The defendant admitted
that
these payments were used to cover the purchase price
7
.
The bank statement of defendant reflected these payments
8
.
The bond provides that interest shall be calculated at the rate or
rates agreed upon between the parties in writing from time
to time
and in the absence of such agreement it shall be determined in
accordance with the rate or rates which the bank levies
against the
particular transaction. There is no stipulation in the bond that
the interest rate shall not exceed 17 per cent per
annum. The bond
also covers an additional amount of R52 000 in respect costs. The
defendant also denied that he ever agreed to
such a term.
In accordance with the doctrine of
“caveat subscriptor”
there is a presumption that a person who signed a document is aware
of the content, irrespective of whether he has read the document
or
not. This presumption can be rebutted in certain exceptional
circumstances
9
.
Defendant in his pleadings states that he did not have the
opportunity to read the bond document before signing it. He saw the
document for the first time when he received the summons in this
matter. It was
an annexure to the particulars of claim. His assertion
that he saw the document for the first time is not borne out
by the
objective facts. He in fact initialled the
bond document when he executed the power of attorney to
register the bond. He has not rebutted the presumption of
constructive knowledge. The court is satisfied that when he executed
the power of attorney, he was aware that a bond was to be registered
and had constructive knowledge of its content.
The first issue of fraud that the court will evaluate is the
allegation that plaintiff fraudulently converted a loan on a bond
to
an overdraft facility. The crux of defendant’s objection, the way
I understand it, is that the proceeds had to be paid by
the
plaintiff directly to the transferring attorneys and not by
converting a bond into an overdraft facility on his cheque account.

The defendant alleges that such conduct was fraudulent, which
entitled plaintiff to charge a higher rate of interest than the
agreed rate of not more than 17 per cent per annum. In support of
this contention, he relied on three documentary exhibits. The
first
one was the application form for the opening of the banking account,
which states “No overdraft facilities”
10
.
The second one was a letter from the Landbank which confirms that
defendant had applied for a loan and such application was
withdrawn
11
.
The third one was a computer print out of defendant headed
“Portfolio Enquiry – Consolidated”, with hand written notes.

The printout was mysteriously posted to him by an unknown person
12
.
Mr Gouws, the branch manager of plaintiff at the time, testified
that he was not permitted to finance the purchase of farms through
the granting of bonds. The modus operandi was to do so through the
granting of overdraft facilities on security
of a covering bond. This evidence was not disputed or
rebutted by defendant. He testified further that, save for the
modus
operandi referred to, at the time he opened defendant’s banking
account, there was no agreement with regard to overdraft
facility on
such account. This was endorsed on the application form. However,
prior to the registration of the bond, defendant’s
account went
into debit and plaintiff, by tacit agreement, granted him an
overdraft facility of R10 000 to cover such overdraft.
The inherent
probabilities are consistent with such version and the court accepts
Mr Gouws explanation.
The defendant testified that he was persuaded by plaintiff to
withdraw his application for a loan from Landbank and apply to
plaintiff
for such loan. Defendant contended that he was offered 17
per cent interest by Landbank and it would have been foolhardy for
him
to have gone to plaintiff for a loan if its interest rate was
higher than that of plaintiff. The letter from Landbank does not
disclose its rate of interest but there is no reason to doubt
defendant’s contention in respect thereof. Mr Gouws denied that
plaintiff approached defendant to seek finance from it or offered
him a lower interest rate than the going rate. There is therefore
conflicting evidence with regard to the question of who approached
who for the loan. I do not think that the court is required
to
resolve that dispute for the purpose of present purposes.
With regard to the computer print-out headed “Portfolio Enquiry -
Consolidated”, Mr Pogieter testified that there was nothing
sinister about it. He said that it appears to be a working document
obtained by someone from the records of Absa. He confirmed
that it
was consistent with the other bank statements of the defendant. I
accept that the print-out was a working document.
Although there
are unexplained handwritten notes thereon, the document per se does
not appear to be suspect. Both Mr Gouws and
Mr Potgieter denied
that plaintiff acted fraudulently as alleged by defendant.
The second issue of fraud pleaded by defendant is that plaintiff
included a costs clause of R52 000 in the bond without his knowledge
and consent. It is common practice to include a cost clause in a
bond
13
.
The object is to secure certain costs which may be expended by the
mortgagee in respect of the mortgaged property. The court
found
earlier that when the defendant executed the power of attorney and
initialled the draft bond document, he had constructive
knowledge of
the content of the bond which included the cost clause of R52 000.
His contention that the costs clause was included
without his
knowledge and consent can accordingly not be upheld.
I now turn to the further allegations of fraudulent conduct on the
part of plaintiff. Defendant in his plea alleges that plaintiff
fraudulently and without his consent and knowledge made withdrawals
and payments from, and unauthorized debits to his cheque account.

These entries are satisfactorily explained by plaintiff’s
witnesses. It is common cause that the two withdrawals, complained
of by defendant, were to effect payment of the purchase price of the
farm property. There were also certain overpayments in respect
of
insurance premiums. Mr Potgieter, who testified for plaintiff,
explained that they were due to a computer error. Instead of
presenting one debit order for R1 763, seventeen debit orders for
the same amount were erroneously presented on the same day.
This
resulted in the account going into overdraft. The computer error
was rectified and the incorrect entries were reversed the
following
day, which resulted in the account going into credit again
14
.
Plaintiff acknowledged that certain debits in respect of costs were
erroneously debited to the account. Mr Potgieter testified
that
with the recalculation of the account he found one debit of R537,13
in respect of legal costs was erroneously
included in plaintiff’s claim. Plaintiff agreed that
its claim should accordingly be reduced by that amount. Mr Potgieter
explained that there were two further debits in respect of legal
costs, but they did not form part of plaintiff’s claim. It is
quite clear from the objective facts that, save for the amount of
R537,13, the other incorrect amounts were either reversed or not
claimed. The court is satisfied that defendant did not suffer any
prejudice by the withdrawals, overpayments and unauthorized debits
as
alleged by defendant.
Besides the objective facts, the probabilities also do not support
defendant’s allegation of fraud. Firstly, defendant raised
the
question of fraud for the first time in writing after plaintiff
instituted legal proceedings for the recovery of the loan.
Although
defendant testified that he raised the issue with Mr Gouws and other
personnel of plaintiff, there is no documentary evidence
to record
such complaint. Mr Gouws denied that any such complaint was made to
him. Secondly, defendant had continued operating
the account,
despite the fact that he became aware of “the enormous fraud”
perpetrated against him by plaintiff. Thirdly,
the objective facts
are consistent with plaintiff’s version and do not favour
defendant’s version. In the circumstances the
court concludes that
the defendant has failed to prove any fraudulent conduct on the part
of plaintiff as alleged by him.
The overwhelming evidence, the objective facts and the probabilities
support the plaintiff’s version with regard to the nature
and
terms of the agreement concluded between them. The court
accordingly finds that plaintiff agreed to advance defendant a loan
of R260 000 to finance the purchase of the farm property in the form
of an overdraft on his cheque account and such loan was to
be
secured by the registration of a bond. The terms and conditions of
such loan are set out in the bond, which includes the manner
in
which the interest is to be calculated and reflects the additional
amount of R52, 000 in respect of costs.
The defence of prescription
I now turn to consider the special defence of prescription raised by
defendant during the course of the trial. The matter was
not
pleaded by defendant. As the matter was essentially a legal issue
rather than a factual one and as defendant is a layperson
who,
through poverty, was not able to afford the services of a lawyer, I
allowed him to raise the matter for the first time at
the trial.
Plaintiff was afforded an opportunity to respond thereto.
Plaintiff’s counsel submitted that there was no merit
in the
special defence, as the period of prescription was 30 years and not
three years as argued by defendant. During the course
of my
research, I came across
section 51
of the
Deeds Registries Act, 47
of 1937
which sets out the requirements of bonds intended to secure
future debts. I thought that it may have some impact on the issue

under consideration. I afforded both parties an opportunity to
submit additional written heads on the question of prescription in
the light of the provisions of the said section. Both parties
provided further input in respect thereof.
In terms of the bond, defendant acknowledged liability to and in
favour of plaintiff for the sum of R260 000 or any lesser amount
which may from time to time be owing (the principal sum) together
with interest thereon. The bond serves as a continuing security
for
the principal sum, interest thereon and the additional amount of R52
000. The bond serves both as an instrument of debt and
as security.
From the wording of the bond it is clear that an existing debt is
being secured. The question whether interest is
an existing or
future debt has been the subject of discussion in case law
15
.
Section 51(1)
is silent on the issue.
In
Rooth & Wessels v Benjamin Trustee and the Natal Bank
Limited
1905 TS,
Innes, CJ
said (at p630):
“…
the rule as to preference of interest under mortgage bonds
is this: If the bond stipulates for interest, or if it is clear from
its
provisions that the parties contemplated that interest would be
paid, and if the property mortgaged is bonded as security for the
interest as well as for the capital, then the interest up to the
legal limit enjoys just the same preference as the main debt. But
if
the bond contains no such stipulation or provisions, then any claim
for interest can only be a concurrent one.”
Applying the principles enunciated therein to the
present case, both the principal sum and the interest thereon are
secured by the bond. The interest thereon up to the legal limit in
terms of the
in duplum
rule accordingly enjoys the same
preference and priority as the principal debt.
In
Tobacco Exporters and Manufacturers v Bradbury Road Properties
1990 (2) SA 420
(C) at 427
I
-428A,
the court approved the proposition that
“while
s 51(1)
deprives
a bondholder of any preference or priority if his bond fails to
comply with
s 51(1)
, it has no effect upon the essential validity of
the bond which remains fully effective inter partes”
.
In my view therefore, the interest in the present bond does not
constitute a future debt within the meaning of
s 51(1).
In the
light of my conclusion it is unnecessary to decide whether or not
the bond complies with the provisions of
s 51(1).
The
Prescription Act, 68 of 1969
provides for a 30 year prescription
period in respect of any debt secured by a mortgage bond. The said
Act is silent on the question
of interest. The precursor
16
provided for a 30 year prescription period in
respect of a debt secured under a mortgage bond and a
three year prescription period in respect of interest secured
under a
mortgage bond. In the present case, the bond secures both the
principal sum and the interest thereon and accordingly constitute
debts within the meaning of
s 11(a)(i).
I accordingly conclude that the period of prescription in respect of
both the principle sum and interest is 30 years. I am strengthened
in this conclusion by the fact that within the capital of the claim
is an amount which represents interest which has been capitalised
over a period of time. It only make good sense that if different
periods of prescription applied in respect of capital and interest
then, in
that event, the interest had to be decapitalised from
the claim, to determine the
question of prescription in respect of each of the
claims.
Defendant’s Counterclaim:
I now turn to evaluate defendant’s counterclaim. Defendant’s
counterclaim is based on fraud. As I have already found, that
defendant has failed to prove fraud on the part of plaintiff, the
basis of defendant’s counterclaim falls away. It is, therefore,
not necessary for the court to consider the two further issues of
causation and quantum relating to defendant’s counterclaim.
The
plaintiff also submitted that it was not competent for defendant to
counterclaim concurrently on the basis of contractual
and delictual
liability. In view of the conclusion that I have reached, it is
unnecessary to decide that issue. Defendant’s
counterclaim falls
therefore to be dismissed.
The
in duplum
rule
A further issue which requires the court’s attention, is the
relief sought by plaintiff in prayer (b) of the summons. In the
light of the
in duplum
rule, is plaintiff entitled to mora
interest as claimed in prayer (b)? According to the judgment of
Standard Bank of SA v Oneanate Investments (in liquidation)
[1997] ZASCA 94
;
1998
(1) SA 811
(SCA) at 834G: “(i) The
in duplum
rule is
suspended pendente lite, where
lis
is said to begin upon
service of the initiating process; and (ii) once judgment has been
granted, interest may run until it reaches
the double of the capital
amount outstanding in terms of the judgment"
17
.
The summons in this matter was served on 18 November 2004. The
amount of the claim is R695 059,33. In terms of the
in duplum
rule the interest ceased to run as at 26 March 2002. In accordance
with the principles laid out in the
Standard Bank case
(
supra
), plaintiff is entitled to mora interest at the rate
of 15,5 per cent from 18 November 2004 to date of payment. The
in
duplum
rule will once more apply in respect of the further
interest on the capital amount of the judgment. In terms of the
bond, plaintiff
is entitled to have the property declared executable
as claimed for in prayer (c) and to be awarded costs on an attorney
and client
scale as claimed for in prayer (e).
The Order
In the premises, judgment is granted against defendant as follows:
payment of the sum of R695 059,33 (six hundred and ninety five
thousand fifty nine rand and thirty three cents);
interest thereon at the rate of 15,5% (fifteen and a half per
cent) per annum from date of service of summons to date of

payment;
portion 1 of the farm Weltevreden No 253 in the district of
Laingsburg, Province of the Western Cape, measuring 391,2299

hectare, held by deed of transfer No T53648/98, is declared
executable; and
costs on an attorney and client scale.
………………………………
E MOOSA
1
See Pillay v Krishna & Another
1945 AD 946
at 951-954 for an
authoritative discussion on onus and South Cape Corporation (Pty)
Ltd v Engineering Management Services (Pty)
Ltd
1977 (3) SA 534
(A)
at 548A-C.
2
See annexure “F” to Defendant’s Plea and Counterclaim
3
See annexure “B” to Plaintiff’s Particulars of Claim.
4
See exhibit “G”
5
See Covering Bond B35805/1998 which is annexure “C” to
Plaintiff’s Particulars of Claim
6
See: Nedperm Bank Ltd v Verbri Projects cc
1993 (3) SA 214
(W) at
220B
7
7
See: Defendant’s reply to question 9 of the Rule 37 Minute
8
See amounts of R84 700,93 on 15 July 1998 and
R175 299,07 on 17 June 1998 reflected on Absa’s bank statement
marked “X10”
9
See George v Fairmead
1958 (2) SA 465
(A) at
470C-D where the Court approved a passage of Innis CJ from Burger v
South African Railways 1903T 571 at 578, which succinctly
set out
the principles; Afrox Healthcare Ltd v Strydom
2002 (6) SA 21
(SCA)
at 41 and Stiff v Q Data Distribution (Pty) Ltd 2003 (2) SA 336
(SCA)
10
See under the column marked “Remarks” in
annexure “B” of Plaintiff’s Particulars of Claim
11
This letter is dated 8 December 1997 and forms
part of Defendant’s Bundle of Documents at p 332
12
See exhibit “B”
13
See: Para 477 (Usual Clauses in Bond) of Lawsa, First Re-issue,
Volume 17 at page 394/5.
14
See bank statements of Absa marked X3-X6
15
See: Lipschitz NO v Saambouvereniging
1979 (1) SA
527
(T) at 531C-D; Klagbruns Inc v Adjunk-Balju, Bronkhorstspruit
1979 (2) SA 169
(T) at 171G-H.
16
See: section 3(2)(c)(v) of the Prescription
Act, 18 of 1943
17
See also The Commercial Bank of Zimbabwe Ltd v MM
Builders and Suppliers (Pvt) Ltd and Three Similar Cases 1997 (2) SA
(ZH) 285
at 300G-I.
Absa Bank Ltd v Jacobus Lodewicus Erasmus

Cont/…